Greetings and welcome to the Select Water Solutions Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris George. Chris, you may begin.

Thank you, operator. Good morning, everyone. We appreciate you joining us for Select Water Solutions conference call and webcast to review our financial and operational results for the second quarter of 2023. With me today are John Schmitz, our Founder, Chairman, President and Chief Executive Officer; Nick Swyka, Senior Vice President and Chief Financial Officer; and Michael Skarke, Executive Vice President and Chief Operating Officer. Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay available until August 17, 2023. The access information for this replay was also included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, August 3, 2023, and therefore, time-sensitive information may no longer be accurate as of the time of the replay listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States Federal Securities laws. These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties, and contingencies could cause our actual results, performance, or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read our annual report on Form 10-K, our current reports on Form 8-K, as well as our quarterly reports on Form 10-Q to understand those risks, uncertainties, and contingencies. Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures. Additionally, as was outlined in our earnings release, starting on June 1, 2023, the company made certain changes to its segment reporting structure. These changes were driven by several factors, which John and Nick will discuss in more detail. Changes in segment reporting have no impact on the company's historical consolidated financial position, results of operations or cash flows. However, prior periods have been recast to include the water sourcing and temporary water logistics operations within the Water Services segment and remove the results of those operations from the Water Infrastructure segment. Historical segment information recasted to conform to the new reporting structure is available as supplemental financial information in the Investors section of the company's website at www.investors.selectwater.com.

Thanks, Chris. Good morning and thank you for joining us. I'm pleased to be discussing Select Water Solutions again with you today. The second quarter saw strong margin improvements, meaningful free cash flow generation and higher net income and adjusted EBITDA. Our continued focus on operational integration and improved efficiency across the business, along with the strength and resilience of our infrastructure and specialty chemistry solutions led to a 4% sequential growth in our gross profit before depreciation and amortization. While we saw a modestly declining rig and completion activity environment over the course of the second quarter, we still were able to grow net income by 65% sequentially to $23 million, and increased adjusted EBITDA to $70 million, a 4% increase relative to the first quarter of 2023. On the cash flow side of things, I am pleased with the progress we made during the second quarter. Nick can touch on the components in a bit more detail, but our focused effort to reduce our working capital is paying off and helped deliver $102 million of cash flow from operations during the second quarter. Adjusting for the $36 million of net capital expenditure spend during the quarter, we were able to pull through about $66 million of free cash flow, nearly matching our adjusted EBITDA for the period. We continue to make additional strides in this working capital reduction effort, but still have meaningful room for improvement. I expect to see more progress on reducing working capital over the back half of the year, providing a significant opportunity for generating outsized free cash flow. Strong free cash flow provides us with many attractive options for capital allocation. During the second quarter, we returned about $44 million to shareholders through dividends and buybacks, funded $36 million of net CapEx, heavily weighted toward our contracted recycling and pipeline infrastructure projects, and closed on a small bolt-on $4 million water containment asset acquisition. Ultimately, we were still able to reduce our outstanding borrowings by $10.5 million. We already have repaid a meaningful portion of our remaining outstanding borrowings during the third quarter to date and I fully expect to have a debt-free balance sheet with a growing cash position again by year-end. Replenishing our cash war chest will provide us with ample opportunities to review our capital allocation priorities, including additional shareholder returns. During the second quarter alone, we were able to repurchase 5% of the outstanding A shares, in addition to paying our third quarterly dividends, and we will continue to weigh capital returns against other growth projects and M&A opportunities. We remain steadfast in our vision to be the recognized leader and trusted partner in sustainable water management solutions. And we believe our continued dedication to achieving operational excellence across the entire organization will further enhance that vision. Operationally, 2023 is a very important year for us, having closed on more than a dozen acquisitions over the last two years. Combined with the rapid pace of market activity growth coming out of the pandemic, we needed to prioritize, first and foremost, safety, employee retention, satisfying customers, and job and project execution. However, as the pace of activity growth has abated and the deal activity has slowed, we have transitioned our strategic efforts. Our focus for 2023 is on acquisition integration, improving efficiencies and operational excellence across the organization and executing on infrastructure projects and free cash flow generation. We look closely at the entire scope and scale of the company and, where appropriate, made determinations to consolidate facilities or relocate assets across our areas of operations from certain non-core service locations. We remain attentive to every dollar of capital we deploy and we will prioritize capital allocation to the most strategic areas of the business, especially where we have the most opportunity to add proprietary applications of automation, chemistry or recycling technology and integrate full lifecycle water infrastructure and chemistry solutions around our existing asset base. We also continue to think hard about who we work for and where we work for them. We must continue to bring value to our customers at all times. But we'll continue to prioritize investing in those customers that are seeking long-term, value-added partnerships versus call-out services. With our strategic infrastructure footprint, we are well-positioned to strengthen the contractual relations we have with our customers and expand the scope of integrated water and chemical solutions that we are able to provide around the infrastructure base. While there is still more to accomplish, we have seen these efforts pay off across the company and our customer base, with gross margins improving by 160 basis points on a consolidated basis during the second quarter even with the modest revenue declines that resulted from the macro-activity adjustments and limited yard closures. In a similar manner, we continue to think about what makes the most sense from a segment leadership and reporting standpoint. Accordingly, during the second quarter, we made the determination to reallocate our legacy water-sourcing business and certain temporary water logistics operations from our Water Infrastructure segment into our Water Services segment. These changes will allow us to better manage our operation and more efficiently deploy capital across the organization. For Water Services, these changes add operations that are more closely aligned with that segment's core completions-oriented service offerings and job execution excellence around the well side. For the Water Infrastructure segment, this change will further focus the segment, so that all of its revenues are now being derived from core infrastructure solutions, namely recycling and reuse facilities, contracted pipelines, and production levered disposal facilities. Importantly, these solutions are nearly all under long-term contracts or are production related in nature, generating high gross margins and adding more stability and duration to the segment's operations than ever before. Additionally, this realignment will free up our Water Infrastructure leadership to fully dedicate their efforts to our highest priority growth areas around brownfield pipeline and disposal projects and greenfield recycling facilities. We have already had tremendous success in 2023 with $34 million of contracted projects underwritten so far this year. The project backlog remains very strong, and we expect to close on multiple additional projects in the back half of 2023. With our recent projects expected to come online during the late third quarter and fourth quarter, I'm excited about the growth prospects of this segment looking into 2024. There were many reasons for us to implement the segment realignment and I believe the changes made will provide clear visibility over time into the financial performance of the business and to the key components that drive the business. We will continue to review what makes sense for the business, but ultimately I think these changes will provide a better alignment to implement additional operational KPIs that can be tracked and reported against, providing for additional transparency and accountability. Select has always been at the forefront of driving the advancement of automation and other technology developments within the water solutions industry. As the evolution toward produced water reuse continues to take hold, it is clear that Select's sustainable water and specialty chemical solutions will be a critical part of driving the industry transition. Importantly, Select is uniquely positioned to deploy these technology and chemistry solutions around a growing contracted infrastructure footprint. Long term, having care, custody, and control over an increased portfolio of produced water barrels, regardless of the ultimate use, will provide a strategic advantage specifically to advance the commercialization and technology advancement of recycling and reuse towards sustainable, full lifecycle or beneficial reuse solutions. As we continue to progress these key initiatives, I encourage listeners to review Select’s 2022 sustainability report for additional details on Select's commitment to sustainability in support of all our stakeholders, our achievements to date and our targets for the future. This report was published earlier this month. It can be found in the sustainability section of our website. Additionally, as our rebranding efforts continue successfully across the organization, it is becoming more and more clear that there are a significant amount of opportunities to create additional value across an integrated water and chemistry business. The more we can highlight the consistent message and visibility to our customers around the entire scope of Select’s capabilities and the value-add potential that our solutions create, the more opportunity we will have to get paid for the full value we provide, to earn long-term contracts and to become better aligned to strategic partners with our customers. When we think about our growth priorities, Water Infrastructure will certainly remain front and center. Supported by our recent acquisitions and business development projects, we have seen a rapid pace of growth in our core recycling business. In fact, Water Infrastructure's gross profit during the first half of 2023 on a recasted basis already matched its full year total for 2022. To put it in perspective, as a percentage of consolidated gross profit before depreciation and amortization, Water Infrastructure has grown from about 7% of the total company gross profit in 2018 to about 25% expected for the third quarter of 2023 on a recasted basis. When combined with our specialty chemistry business, I expect that by 2024, more than 50% of the profitability of the company will be earned from sustainable recycling solutions, contracted pipelines, production-weighted disposal facilities, and specialty chemistry manufacturing. That is a significant evolution in Select's business that provides a lot of optionality when looking at the future growth opportunities, financing considerations, and shareholder return potential. I am very excited about what the future holds for Select and look forward to further executing on this vision through additional profitability growth, shareholder returns, and strategic execution in the coming quarters.

Thank you, John, and good morning, everyone. Our focus on cash generation and operational efficiency paid off in the second quarter with a strong free cash flow yield and higher gross margins for the company. Net income and adjusted EBITDA both advanced quarter-over-quarter even as the surrounding macroenvironment softened during the quarter. Our business model meets the market's need for advanced sustainable water solutions benefited by proprietary chemistry technology and we expect to continue growing our profitability even at today's lower rig count and completions activity. Streamlining our operations and investment decisions, we've pruned legacy freshwater sourcing and temporary water logistics operations from the Water Infrastructure segment, moving it into Water Services and focused our Water Infrastructure segment purely on the full water lifecycle through fixed assets. We invest in contracted water networks around our multi-basin fixed infrastructure, connected by gathering and distribution pipelines, recycling and treatment facilities, and disposal solutions. While this segment realignment doesn't impact our consolidated historical financials or represent a major overhaul of our day-to-day operations, we expect it will provide additional transparency and accountability for investors around the impact of our growth investments in Water Infrastructure. The bulk of our growth capital investments remain targeted towards this reconstituted segment with an advantageous margin profile that should grow as these investments reach their operational go live dates. As John mentioned, we made tremendous progress on cash collections during the quarter, reflected in the $102 million operating cash flow benefit to the company. This is the result of the dedicated teamwork across multiple Select departments to integrate our recent acquisitions, implement new technologies, and consolidate a rebranding of our various businesses into Select Water Solutions. Accounts receivable declined by $62 million during the quarter and our previous target of reducing accounts receivable by $75 million between the first quarter and year-end has now been raised to $100 million. With this target, we expect to repay the remaining credit facility borrowings prior to year-end and have ample liquidity to act on a range of potential strategic opportunities. Furthermore, the strong cash flow momentum we currently enjoy should continue as the rebranding leg work is completed and new technology continues to be deployed. With this robust free cash flow, we executed over $38 million of open market share repurchases on top of our regular quarterly dividend leaving around $10 million of remaining authorization. We approach share buybacks opportunistically to maximize shareholder value in parallel with market dislocations like the recent regional bank reversal. With that philosophy in mind, we don't plan on repeating that level of buyback activity during the third quarter. However, November marks the one-year anniversary of the initiation of our regular $0.05 per share quarterly dividend and we plan to re-evaluate that level following our upcoming August payout. With our expectation of ample free cash flow over the back half of the year, a growing stream of contracted and production-levered high-margin revenue, and our robust liquidity profile, we hope to further our commitment to consistent and growing shareholder returns over time. Now looking at the income statement. Select Water Solutions' second-quarter revenue declined sequentially by 3% to $405 million. However, our efficiency efforts and further business and product optimization carried additional dollars to the bottom line through higher gross margins. Net income increased from $13.7 million to $22.6 million sequentially, and adjusted EBITDA increased to nearly $70 million from $67 million in the first quarter. While declines in completions activity along with rig count through the second quarter present some macro headwinds, we believe we can continue to advance the overall profitability of the company into the back half of the year. Commodity prices have recently strengthened and our customers generally remain highly profitable and well-capitalized. We've seen pricing remain steady and we do not anticipate any material pricing movement based on activity levels. Additionally, some of the projects we announced last quarter will begin to make an impact in the third and fourth quarters, though the bulk of the growth will come early in 2024. Sustainable and reliable produced water management remains a core priority for our customers and is supported by Select's uniquely positioned multi-basin solutions with a massive volumetric footprint. We have a number of potential incremental infrastructure projects in various phases of development that we expect to announce in the coming quarters. Now walking through the updated segments. Water Services revenue declined by $10 million sequentially or a little less than 4%. We prioritized higher profitability over top-line growth, targeting a limited rationalization of underperforming locations and a lower completions activity environment. We still have opportunities to integrate overlapping locations and are likely to continue closing or consolidating certain locations that have not fully benefited from the recovery over the course of the year and redeploy those assets or sell them to generate cash that would be more efficiently deployed elsewhere. With this strategy in mind to maximize return on investment, we expect a low to mid-single digit percentage revenue decline but higher profitability with an improvement to gross margins before depreciation and amortization of up to 100 basis points. Our recalibrated Water Infrastructure segment delivered a steady performance from the base of a very strong first quarter. We believe the third quarter should see gains in both revenue by mid-single digit percentages as well as gross margin before depreciation and amortization of 200 basis points to 400 basis points. Removing the water sourcing and logistics operations from this segment provides a clearer view of the margins and scale of our water reuse and recycling infrastructure. With expected gross margins moving above the 40% range for the third quarter, we expect continued accretive margin progression as previously announced projects and future projects come online later this year and into 2024. The Chemical Technologies segment reached another all-time high gross margin level, exceeding 20% with continued success in specialty chemistry sales. We expect steady results in the third quarter as market share gains offset lower industry activity relative to the second quarter. Consolidated SG&A decreased sequentially to $34.3 million from $35.8 million, due primarily to a $1 million decrease in transaction and rebranding costs. I expect the back half of the year will deliver around $35 million per quarter of SG&A given the ongoing rebranding efforts that conclude at the end of the year. We have broken ground on most of the various infrastructure projects we announced on our last call and second quarter net CapEx of $36.3 million increased from the $21.2 million of the first quarter. Our 2023 net CapEx forecast remains within its previous range, with a tightening of that range to $100 million to $130 million, after giving effect to roughly $20 million in expected full-year asset sales. I'm pleased with our heightened cash flows; we were able to pay down our sustainability linked credit facility by a little over $10 million while executing these critical organic growth investments as well as the $44 million of shareholder returns during the quarter. We expect depreciation and amortization expense to continue at around $35 million per quarter and tax expense to remain minimal through 2023. We added $27 million of liquidity during the quarter, to finish with $193 million of total liquidity. Select is accomplishing our core 2023 priorities including boosting our operating margins and generating substantial free cash flow. After several years of accretive acquisitions and dynamic growth, we are now extracting additional margin and profitability out of our existing market-leading footprint while deploying enhanced cash flow into long lives, high-return infrastructure investments and increased shareholder returns. We're ideally positioned to achieve these goals and enter 2024 stronger than ever.

Thank you. And with that, we'll open it up to questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Jim Rollyson, Raymond James.

Good morning, guys.

Good morning, Jim.

It's great to see the progress this quarter across all aspects, particularly regarding margins and cash flow generation. Referring back to what you mentioned earlier, Nick, when we consider margins for Water Infrastructure as currently classified, it appears you will be able to demonstrate growth in a more distinct manner than previously reported. We're exceeding 40% margins and are guiding substantial growth sequentially, possibly in the range of 200 to 400 basis points. As I reflect on that business, particularly when new projects begin in late Q3 and Q4 and have a positive impact next year, I'm curious about the potential for those low 40s percent margins. Could they move into the mid-40s or high 40s? It would be helpful to understand how you envision that and any insights you might share regarding incremental revenue opportunities for that business based on ongoing projects.

Sure, Jim. Thank you. So as we look forward on that Water Infrastructure segment, I'd like to be at a 50% run rate at some point late 2024. Now how do we get there? We announced $34 million of infrastructure projects in our last call. As you know, we like to underwrite contracted projects with a three-year payback window with additional upside potential from third parties or expansions. So you do a little bit of math there and that gives you a pretty healthy EBITDA, $10 million, $12 plus million just from those projects alone. We do expect to come back and detail some additional projects over the next quarter and into the back half of the year that will add to that and add to it at accretive margins of 50% or better. So that's the real growth engine here of when we look forward, taking that segment from around 40% where it is today to an exit rate of around 50% with additional optionality as we continue to expand these networks, as we continue to bring recycling, not just in the Permian, but in other basins, and develop many of the assets that we've acquired over the past couple of years.

And, Jim, this is Michael. Just to expand on something that Nick said in terms of timing, which was part of your question. When you think about it, when we execute a contract to underwrite an infrastructure buildout, most of our buildouts are going to take, and it varies on the project, but seven to nine months. And then once construction is complete, then you have to work through the operational and commercial issues. And that can take a little bit of time as well. And then at that point, you're going to really start to see the full run rate of that project contribution.

It seems to be steady, with no new projects indicating a gradual increase as we move through the next few quarters. You mentioned there are still opportunities in the Permian and other areas. Are we looking at similar-size projects to what you have been underwriting in the last 18 months, or are there potentially larger and more significant projects coming up? We have been focusing on smaller successes while achieving good margins, but I am curious if, following your rebranding and as more people recognize your capabilities, there are any larger opportunities as well.

And as John mentioned, we are pretty confident that we're going to be able to deliver more projects in the back half of the year. We're getting a lot of interest, whether it's through the rebrand or just executing for our customers. We're getting a lot of interest on projects really in all basins across our footprint. They range from small deals to quite large deals, bigger than anything we've announced. I would say the average is still kind of within the range of what we're talking about, something that looks like a $6 million to $10 million build-out. But there are definitely things that are smaller and larger. And it's my hope and expectation that we'll be delivering on both.

Fantastic. And just one last question. John, on the M&A front, you guys were busy consolidating a bunch of things at pretty attractive prices. And then you've kind of spent a good chunk of this year focused on integrating everything, overhauling the business and the rebranding efforts. Curious just what the outlook or opportunity set is for M&A as you kind of get past the integration phase, given that you guys are obviously going to be generating a lot of free cash flow and probably can't buy all your shares back forever, given your market cap today. So just curious kind of the opportunity set here over the next couple of years?

Great question. We have been very active and have completed many transactions with various companies. The key thing we’ve established is a strong asset base across the lower 48 states, with a leading position in some areas, and we see significant opportunities tied to this asset base. Regarding mergers and acquisitions, if they align with enhancing this asset base and offer ways to increase volume or provide valuable capital opportunities for both our customers and us, we are definitely open to it. However, our current focus remains on the unique infrastructure asset base we've developed. There are many discussions and opportunities beyond those we’ve already disclosed; while some are substantial, many are smaller initiatives, such as pipelines for transporting water to connect our assets and enhance our network. A considerable number of these have quick payback periods. Additionally, I want to emphasize that our rebranding is crucial as it helps define who we are to our customers and investors, but ultimately, it’s our network and the asset base that are driving opportunities, whether through pipeline infrastructure or the implementation of water recycling facilities and long-term contracts associated with our concentrated water positioning.

Yeah. Sounds like a great place to deploy capital. Great to see the progress. Thank you, guys.

Thanks, Jim.

Hey, good morning.

Morning, Luke.

Good morning. Jim tackled the Water Infrastructure margin question. I guess in Water Services, nice margin improvement there, even with revenues ticking down. And the third quarter has the same outlook with revenues down modestly but margins up. Can you talk about some of the operational improvements and efficiencies you're seeing and maybe where margins can go even in a flattish environment? It sounded like some of this might have been closing down unprofitable locations to continue to rationalize the asset base. But any commentary you can provide on that'd be helpful.

Sure. Our short-term goal for Water Services is to achieve margins in the mid-20s, with a longer-term target in the high-20s. The main factor driving this goal is further integration, which includes consolidating and possibly eliminating some yards that are either not strategic to our integrated water and chemical operations or are only moderately profitable. While this consolidation may exert some downward pressure on revenue, we anticipate that margins will remain stable or even improve as a result. Additionally, beyond integration, we are focusing on operational efficiency. We have moved past COVID and have rebuilt the organization to the necessary level, and now we need to instill the discipline needed to run a services business effectively and enhance efficiency. We have established a strong supply chain team to help us utilize our buying power across all segments, and we are implementing several everyday operational improvements to better achieve our medium and long-term margin goals. Lastly, a key factor in improving margins is our commitment to technology. We are dedicated to automation and the use of technology to deliver safer, more reliable, and cost-effective solutions for our customers. We've made progress in some areas, but there are still many opportunities to introduce effective technology that can enhance profitability. This is the focus for our services division.

Got it. Perfect. Thanks a bunch.

Thank you. Good morning, guys. For Water Infrastructure, the division entered this year with 15 sites online and operating. Will you provide us with a quantified estimate of how close those 15 are now to having maxed out their structural revenue generation potential through adding customers and tying in new branches? Just for those existing 15, are we at 80%, 90%? How far along are they?

So, on the site, it really comes down to individual points in time. And we can have some sites that are full out for a period of time. But that's typically not sustained. If you were to just apply a butter knife across them, I would say that we still have meaningful excess capacity. So I would say somewhere in the 50% to 60% range in terms of utilization. And those are a lot of the projects that we're working on is looking to tie in more customers so that we can leverage that capacity and to the extent that we start to bump up against capacity. Many of them are modular in nature so that we can expand that. And we have expanded and will continue to expand it to meet the needs of our customers in the market.

Yeah, Tom, this is John. I want to add that as we continue to develop our asset base and integrate these projects, we’ve transitioned from viewing this as individual assets to seeing it as a more comprehensive system. This broader system significantly impacts our capacity to move water to where it's needed or to remove it from production sites, along with the recycling of our disposal assets. By integrating these components, we can meaningfully increase our capacity.

Because you're not limited by the single system utilization, so that you're able to work through kind of the highs and lows and to peak shape somewhat.

And Tom, one last thing with it, it's really becoming to develop itself really well now. But because of the systems or assets or overlaying recycling on top of large produced water volumes that we've been able to do, it's also allowed us now to think about how we go to market or how we really have a relationship between the Water Services business and the specialized chemistry business through this footprint of infrastructure. It's very different. And we think there's great opportunities, whether it's margin expansion or added services or bringing specialized chemistry into the mix.

That all makes sense. And then two more questions in the line of inquiry here on Water Infrastructure's opportunity set. I believe you had been pursuing a total of 12 projects as of your last update that you gave us. Could you update us on that number? Has it held the same, increased, have any dropped out? And then of the current total number that you're chasing, how many of those entail full lifecycle recycling facilities?

The number is certainly variable. Deals can fluctuate, and you can't be sure if they will be finalized until you have two signatures on a contract. Generally, while some opportunities have been lost, the overall opportunity set has grown compared to the last time we spoke. We are currently positioned above that earlier estimate, with at least half or more consisting of full lifecycle water projects. We are concentrating on everything related to our existing operations, focusing on infrastructure and the water chemistry aspects we've previously discussed, ranging from large to small projects. There is significant interest in our full lifecycle solution, which primarily starts in the Permian due to the high volume of produced water, and we are engaging in these discussions throughout our operational area.

Good morning. Just a few completely random questions here. I guess the first one would be if all of the projects that you're evaluating were to be realized, what type of CapEx could that look like next year?

John, we certainly aim to gain a clearer understanding of that as we approach next year's budget. If all the projects come to fruition, the potential financial impact would be significantly greater than what we have today or what we experienced in 2023. We are identifying opportunities that are larger, as Michael highlighted, as well as others similar to our most recent announcements. It’s crucial for us that these initiatives align with our cash flow. We focus on high-return projects, knowing that Select manages a substantial amount of water nationwide. We have the ability to recycle, dispose of, and transport this water across different basins and customers. Ultimately, we aspire to utilize this water for beneficial reuse, which underpins the purpose of all these projects, enhancing our system and leading to improved economic outcomes through better connectivity. Thus, we see opportunities for expansion and the possibility of applying our solutions beyond the oil and gas sector and into new areas. We will approach this thoughtfully and carefully, but there are many promising developments on the horizon that I look forward to discussing in future calls.

Got it. Now, I really what's driving the question, I’m trying to get a sense for whether you think the demand for all of your services is actually accelerating relative to growth you might have experienced in the last year or so?

Yeah, as Michael mentioned, we have certainly more projects under discussion than we did six months ago, and that's long-term contracted projects when we talk about those.

Hey, John. Before we get off that subject, because I don't know if it's direct to your question, but I believe it's an answer related to it. What we are finding as we build out this opportunity set in the Water Infrastructure, it adds to the ability for us to do more services and that more services could be around that actual facility as well as the interaction between the facility and the job and it is driving something different than what we had before as we develop it, John.

And the same thing would be true for the chemistry component. Really around the recycling fees, but as you put in more recycling facilities and you're managing that produced water and making it into a usable frac water again, applying Select chemistry to that, which really focuses and specializes on matching complex water with the right chemistry, there's an augmentation effect there as well. So it's services and the chemistry piece.

Fair enough. Interesting. I’ll need to follow up on that to learn more. Regarding the projects, I know you mentioned you are involved in various geographic basins, but I'm curious if you are identifying any new potential projects in areas outside of your current operations.

The short answer is yes. The distribution is still primarily concentrated in the Permian, as that area has a significant amount of activity related to produced water. However, we are observing developments in regions where we have previously operated, such as the DJ, as well as in new areas where we do not currently have projects or have not announced any. Other basins are continuing to face produced water challenges and opportunities for reuse, and they are starting to make progress in this area. We are really excited about this, as it creates an infrastructure opportunity for us, especially around our existing and newly acquired assets. Additionally, as more reuse is embraced, there is a need for more complex chemistry, which is our area of expertise.

And John, typically we'll have operations in those areas, but we may not yet have recycling facilities or major infrastructure projects in those areas but we're not looking at going to Alaska or offshore or anything here.

Yeah, I should have specified within our existing footprint.

And John, before we get off that subject because it's again, I believe it adds to your question and has a point of effect to your question. You take our position in the Haynesville Shale with what we got out of the Nuverra transaction, that pipeline system and that disposal network that we continue to hook together and add to has probably a big piece of the backlog that Michael is talking about, but there are really projects that continue to hook it together or add disposal or lay pipe to more produced water that's being hauled and it's a good backlog, but the interesting thing is the Haynesville contracted but we actually are adding to in the Haynesville right now and if Haynesville got active and it become an opportunity for recycle, we have a large quantity of water that’s centralized with the network that you can deliver back out to second.

Okay. Interesting. And I guess I'll go to my final question, which is admittedly a bit of a nerdy question. But when you think back to like the old water business, going back a lot of the fluid hauling trucks, I'm just curious how many trucks are running on the road today versus what you might have had four to five years ago? And then on that fleet, what's the opportunity set to maybe have CNG-powered factors or electric? That's it for me.

John and I are considering your question. It's a good one, and I haven't thought about it for a while. I’ll need to follow up with you to provide more detailed information, but reflecting on it, all of the hydraulic fracturing water used to be delivered by trucks in the past. While the fracturing sizes have become smaller, it still meant a significant number of trucks. The pipeline infrastructure for produced water and flowback was also limited or nonexistent. Now, all of the hydraulic fracturing water is delivered through hoses or pipes. In most basins, except for the northeast, flowback and produced water come through the pipeline. This means the industry has significantly reduced the number of trucks. However, there are still many trucks operational, and there will always be a need for them in certain situations. The reduction, though, is quite notable. Regarding CNG, we have examined both CNG and LNG over the years. There are economic factors to consider, along with logistical challenges. It’s essential to establish the necessary infrastructure at your facility to make it viable and to be disciplined and strategic in route planning.

Hey, John. Before we get off that subject, I think it's really important to be very clear. Tank trucks in the oilfield has a place and that place is still getting executed today, and they will continue to have a place. They are a service component and they all produce water in a meaningful way that's not hooked to pipe today. The other answer, and it would not be a compressed natural gas answer directly to you, but we believe, Select believes, that the technology and advancement of automation and technology through the cab or through the motor of those trucks has not been advanced to the position it's going to be advanced to. And that will bring a different type of truck application as we go forward.

Fair enough. Thank you for indulging my questions this morning.

Thank you.

The next question is from Jeff Robertson with Water Tower Research.

Thank you. Good morning. Just a question, as operators continue to push where they can for longer laterals and larger completion jobs, does that present an opportunity obviously on the volume side for what you all can do for customers? But does it also present an opportunity for you to provide higher margin solutions to customers?

Yeah, this is John. I'll take it and try to answer it. Longer laterals and activities around completion, whether it's simultaneous fracturing or longer laterals are more complicated water opportunities to the well site, multiple sources, recycling, automated manifolds, automated pumps, those jobs are getting very technical now. And that is a very good position for Select to be in as those jobs continue to get more technical. But because of use of water, the utilization or the efficiency that is demanded by our customer in a 24-hour period and the complexity of that. So it's a plus for us, but yes, it complicates things.

Does that play into your hand or your strength just with what Select can deliver to the customers for site management?

Yeah. It plays into Select's thesis, but it also plays into Select's history because if you look back across the last 10 years of Select Water or large quantity water fracs have developed and simultaneous fracs have developed in pad drilling and longer laterals, the complexity of that job is what we’ve really built our technology around. So AquaView, automation, pump technology, and aid sources for a big job that needs to be brought into the solution of delivery, it's really what our backbone is about. Thank you, operator. And thanks for everybody for joining the call today and giving us the interest in learning more about Select Water Solutions. And we definitely look forward to speaking to you again next quarter.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines and have a wonderful day.